General SENS Submitter Company - GEN General - JSE Limited - REIT Distribution: Invitation for public comment

GEN – General - JSE Limited - REIT Distribution: Invitation for public comment

GEN – General - JSE Limited

REIT Distribution: Invitation for public comment

Introduction

In terms of the JSE Listings Requirements (the “Requirements”) entities that have been
granted REIT status under Section 13 of the Requirements are obliged to distribute at least
75% of their distributable profits within four months of their yearend in order to retain their
REIT status. This obligation is conditional on compliance by the REIT with the solvency and
liquidity requirements stipulated in Section 46 of the Companies Act, No 71 of 2008
(“Companies Act”).

Impact of COVID-19

Property companies (as most participants in the general economy) are operating in market
conditions of unprecedented volatility and economic uncertainty. This is primarily attributable
to the COVID-19 pandemic and the resultant lockdown not only in South Africa, but globally
(there are many REITs who have international property portfolios.) The impact on REITs (and
the property sector) inter alia, is that there is enormous difficulty in forecasting cash flows with
any degree of certainty. The factors contributing to this uncertainty include:

  *   non-payment of rentals by existing tenants;

  *   unresolved disputes and negotiations with tenants. The outcome of these disputes is
      likely to take several months;

  *   uncertainty as to the nature and timing of the lifting of the lockdown;

  *   uncertainty as to the financial stability of tenants in a post lockdown scenario; and

  *   lack of clarity from either banks or debt capital markets in terms of refinance options
      and/or provision of new loans. This impacts the ability of property entities to accurately
      assess the likelihood of debt refinancing that is due to take place.

The position of various stakeholders

Shareholders

Certain shareholders, have called for preservation of cash and a withholding of dividends
during the crisis, until such time that further clarity is available in terms of the operating
environment. On the other hand, certain shareholders are of the view that issuers must comply
with their obligations as recorded in the Listings Requirement and rely on REIT distributions
as a source of income. These shareholders have expressed concern about the negative
consequences of non-payment of distributions.

Directors

Whilst many REITs are likely to be able to pass the solvency and liquidity test as set out in the
Companies Act, they are concerned that to pay such a distribution would be irresponsible and
not be in the best interests of either the company or its shareholders. The uncertain market
conditions are unpredictable and subject to unforeseen and unforeseeable changes. Directors
of these companies are concerned that there is currently no reasonable visibility of what the
immediate future holds and that paying of a dividend (merely to retain REIT status) could be
detrimental to the long term viability of the entity.

National Treasury

The SA REIT Association has made a request to National Treasury to provide them certain
relief during this COVID 19 crisis, including dealing with the implications of potential non-
payment of distributions.

The JSE

It is not within the ambit of the JSE’s regulatory powers to compel the Board of Directors of an
issuer to make a distribution. It is incumbent on the Company, acting through its directors, to
decide whether a distribution should be made. The JSE is only in a position to deal with the
consequences of the Board’s decision. The Listings Requirements state that an issuer that
fails to make a distribution will no longer qualify to be classified as a REIT. This may result in
detrimental consequences for both the company and its shareholders in that:

    *   shareholders will no longer receive the tax benefits applicable to REITs; and

    *   the Company will have to wait for 24 months before it will be in a position to re-apply
        for classification as a REIT.

Conclusion

The various competing stakeholder interests set out above need to be carefully considered.
The JSE believes that it is important to get input from all relevant stakeholders on the
predicament that the sector is facing so that all the facts and information are considered in
deciding the best possible way forward on the matter. Issuers in the sector have requested
various forms of relief that includes:

   *    deferring the final date by which REITs are required to make their distribution (until it
        is appropriate and feasible to make this assessment, in the best interest of all
        stakeholders); or

   *    paying a limited or no distribution at all.



Invitation for comment

We therefore invite comments on the above matter and specifically whether or not the relief
should be considered by the JSE. It is important to note that the JSE will consider all the facts
and information together with the comments received from stakeholders and can only then
determine if any relief may be granted taking into account the powers of the JSE and those of
other regulators pursuant to the Requirements, the FMA and other statues.

We ask that written comments be submitted by close of business, 4 June 2020. Comments
should be sent to consultation@jse.co.za.

26 May 2020

Date: 26-05-2020 05:19:00
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